Tag: Due Diligence

Indiana Commissioners Sales Strategies (Continued)

What should we buy at Indiana Commissioners sales, and where do we find it? We answered that in Indiana Commissioners sales Part 3 – be sure to take a look at that if you haven’t seen it yet.

We’re looking for single family homes in at least fair condition, that are currently occupied. We don’t care too much about the neighborhood as long as the subject property itself meets our standards. There are dozens of cities in Indiana where these properties are plentiful on the Indiana Commissioners sale list each year.

Now how do we minimize risks, and what do we actually have to DO to make our investment safe? That’s what today’s installment will cover.

Due Diligence

In most cases you’re going to want to come to town for at least a day or two to investigate the properties on the Indiana Commissioners sales list. However, there are a few strategies that greatly reduce (or can even eliminate) this need.

1. Online Investigation – While you cannot really confirm that a property is “good” from home, you definitely can confirm that a property is “bad” and eliminate it from your list.

In fact, 90-95% of the properties on a typical Indiana Commissioners sales list should not be purchased. This is because they have no practical use, are in terrible condition, or are otherwise worthless.

Unless you have a well thought-out strategy involving land, eliminate it right at the beginning – especially in the areas we’re looking for houses. A notable exception is land with a billboard, cell tower, or other similar improvement – but these can be hard to detect and confirm.

No need to do any more research on a property like this - move on.

Try to find a county website that has assessed values, square footages, and/or actual pictures of the properties. You should be able to eliminate a lot of properties that are obviously unsuitable. Look for houses that are too small (less than 750 square feet), assessed for very little, or such bad condition you can see it in the photograph.

2. Send Postcards – You can reduce the size of your “short list” further by sending an inexpensive postcard to each property left on your Indiana Commissioners sales list before coming to town.

All you’re trying to do is see if the postcard comes back undeliverable, and if so, you should consider eliminating that property from consideration.

The Postcard Technique
Notice that our strategy is completely opposite from regular tax lien sales when we work Indiana Commissioners sales. We want OCCUPIED properties with the commissioners sale because it makes property condition more likely to be good, which is our main unknown. We are not so concerned with the chances of the property redeeming, because the owner would probably have to pay more than the property’s value at this point to redeem.

Contrast this with regular tax lien sales, where there are plenty of good properties but almost 100% of them redeem. There our biggest issue is that the redemption rate is so high, and the property condition is less a problem. So there, we look for VACANT properties because that increases the chance the owner won’t get notices about the tax sale and won’t redeem.

We purchased the lien on this home for $3093 - and immediately had Section 8 start sending us the checks once we acquired it.

One last thing to check for the remaining properties, is that the actual parcel number listed in the Indiana Commissioners sale list contains the house you want to acquire. See if the county has GIS online, and if so, check each parcel number to make sure the house actually sits on the parcel. Don’t buy any liens on parcels that only contain part of a house.

At this point, it makes sense to take the 1-2% of parcels remaining and a GPS unit, and go drive by each property. Remember, you’re looking for occupied properties in an nice of shape as possible.

There is another way to approach these sales, especially if you live out of state. You will still perform the preliminary step of eliminating land and other obviously unsuitable properties. You should even send postcards as mentioned above so you can get down to a good “hot list”.

However you will not necessarily have to spend a lot of time examining properties in person or traveling around if you want to participate in several online sales. We’ll cover that in the final installment of Indiana Commissioners sales – Part 4. We’ll also discuss why RIGHT NOW is the perfect time to get involved in Indiana Commissioners sales.

Indiana Commissioners Sales Strategies

Now, it’s time to get into the nitty-gritty specifics – strategies you can actually use when investing at Indiana Commissioners Sales. I’m actually going to have to split this one in half – too much good stuff to leave out.

Property Characteristics

In my experience, there is one, and only one, specific type of property you should target at Indiana Commissioners sales.

You should look for single family houses that are occupied and in fair condition or better.

Occasionally you will run across a vacant house that is obviously in great shape. In this rare case, you may want to make an exception to the rule. For instance, once I bought a lien on a vacant property that was listed with a Realtor. I went online to view the interior pictures and it turned out the inside was just as nice as the outside.

I confirmed this vacant house was as nice inside as it was outside, before buying.

Also notice in the property description that I didn’t say “in a good neighborhood”. Good neighborhoods are obviously a bonus and you can sometimes acquire properties that have everything going for them. But if the property is occupied and in good condition, I’ve found the neighborhood is never a reason not to buy. You’ll see why later.

What Cities Have Properties Like This That You Can Find at Indiana Commissioners Sales?

Many cities, and indeed entire counties, will not have properties in the Indiana Commissioners sale that meet the above criteria. You’ll simply have to invest in another county if this is the case.

There are a lot of “rust belt” towns in Indiana that are full of these properties, however. And surprisingly, there are decent renters for these properties if you charge a low rent (which you can afford to do because you will have ‘stolen’ the property!). Here are some that come to mind (not a complete list by any means):

In case you haven’t heard, Indiana also is one of the few financially healthy states in the country right now. I believe this will attract a lot more business and jobs to the state over the next few years because other states will have to continually raise taxes to survive. Indiana just had a $1.7 billion dollar SURPLUS for the year.

Appreciation really is not an important part of our strategy here. But it sure is nice to have property that can really only go up in value since it’s near bottom now – along with conditions that would allow these towns to make a comeback.

Avoid Certain Occupied Properties at Indiana Commissioners Sales

You’ll also find occupied properties in totally nasty condition. I used to think that condition didn’t matter if the property was occupied, as the occupant would surely pay me something to stay. I was wrong.

I found that most of these occupants are looking for an excuse to get out of their filthy conditions, and asking them for even $100-$200 monthly rent was enough to motivate them to take action (move). Soon you’re stuck with the kind of property you were trying to avoid owning in the first place.

As you look at properties, it is tempting to buy liens on property in bad condition because the minimum bid is so low – as little as $150 to buy the lien. You may figure that you could sell the property for at least a couple thousand as long as it is still standing.

With the real estate market bad right now, there is almost no demand for this kind of property in an urban area. This is because even properties in rentable condition are worth nearly nothing on the resale market. Therefore it’s impossible to come out ahead by fixing a decrepit property.

Eventually, you’d likely succeed in reselling the property for a few thousand to someone in the neighborhood with some lofty dreams. However, that sale price may not even cover your legal fees and closing costs. Junk properties in these areas are really just a waste of time and very stressful to own and try to sell.

Your goal should be to acquire properties that are already occupied with a renter – or close to being rentable – and to step in to collect the rent as soon as you get your deed. If you don’t want to be a landlord, you could also resell the properties for a small profit, but compared with the rent you can collect, I think it’s foolish to sell rented properties you get from Indiana Commissioners sales.

Why Rentable Properties Can be Purchased for Almost Nothing at Indiana Commissioners Sales

We’ve covered many reasons why decent rentable properties can be purchased for as little as $1000 in certain cities at Indiana Commissioners Sales:

These unique features take away most of the most negative aspects of the regular sale. The shorter redemption time and lack of competition are the two biggest advantages.

Indiana Commissioners Sale Downsides

Liens purchased at Indiana Commissioners sales still share many characteristics of “regular” tax liens. Here are some issues that you’ll have to deal with when investing, that are common to any tax lien investing:

1. Due Diligence As with any tax lien investment, it remains important that you perform due diligence on the liens offered. Mainly, this consists of assessing whether the underlying property is profitable, and making sure that the lien offered is against the same property you believe it is.

For example, a lien on the list may show an address of 3388 Elm St, and you may notice a nice house at 3388 Elm St. However, when you look at an aerial map or GIS of the property, you may discover that the actual parcel being offered is a worthless side lot or garage next to the property.

2. Post-Redemption Period Wait Times – Once the redemption period ends, you know you’ll obtain the underlying property if you have not been paid off. However, some counties “move at their own speed” when it comes to actually issuing your deed. This can add months and months to the overall wait time before you get the property, easily exceeding the redemption period itself in some cases.

It’s probably a good idea to look at past Indiana Commissioners sales in each county, and noting the date of sale and date most of the deeds were issued. This will give you an idea of the wait time you might expect.

3. Unknown Interior Condition of Properties – As with all lien sales, the owner of the property is not going to welcome you inside to assess the property condition prior to the sale. You’ll have to do your best to assess overall condition from the outside.

Here’s what I’ve noticed – if a property is well-kept outside, it’s somewhat more likely (though far from guaranteed) to be OK on the inside. However, if the property is very dumpy on the outside, it’s almost certainly dumpy (or worse) on the inside.

We have ways of dealing with this, as you’ll see in Part 3.

4. Unmarketable Title – When you get a tax deed in Indiana, you cannot give a buyer title insurance on the property until you perform a “quiet title action”. This is a legal process that basically confirms the tax sale’s validity and costs $500 – $1000 and takes several months.

Most buyers will not buy without title insurance and therefore will not buy without quiet title.

Let’s look at “negatives” particular to Indiana Commissioners sales:

1. Lower Quality Properties – This is the main drawback. Most of the very best properties are sold in the first treasurer’s sale. The houses that are left at Indiana Commissioners sales are often from the “rougher side of town”. However, they can make great rentals, as you’ll see in Part 3.

There will be many, many worthless properties on the Indiana Commissioners sale list that you wouldn’t even want for free.

2. Due Diligence – You will have to do a lot more due diligence per suitable property you identify – because you’ll be sorting through a lot of bad ones.

3. Legal Expenses – As with all tax lien purchases, you must get a title report and quickly give the owner and lienholders notice that you’ve acquired a tax lien against the property. Here you have to do it lightning quick, as soon as you buy the lien. The notice must be received well before the redemption deadline, and with only 120 days, that pushes the deadline for notice to the beginning.

Also, because you’ll be often buying these liens for hundreds of dollars, or only a couple thousand, your legal noticing expenses can EXCEED your investment in the liens! Be sure not to use your entire bankroll to buy the liens because you’ll often need just as much to pay your attorney to do the noticing. Be sure to figure in $800 or so in reserve cash for the legal fees, and add that amount to the amount of the lien when determining whether to buy it or not.

Bottom Line

You’ll be experiencing wait times after the redemption period of your liens that are largely beyond your control, and you’ll still have to perform due diligence on the entire list. You’ll also be ending up with mostly lower-end properties (don’t let this scare you, be sure to check out Parts 3 and 4). And, you need to budget a legal fee budget that may equal your lien purchasing budget.

These issues are not insurmountable, however. In Indiana Commissioners Sales Part 3 we’ll talk about proven strategies to make profitable investments at Indiana Commissioners sales.